RESERVE BANK

New Zealand Herald, Volume LXXV, Issue 23060, 10 June 1938, Page 17

RESERVE BANK

WIDE LENDING POWERS EFFECT OF AMENDING ACT MEANS OF CREDIT CONTROL The greatly-widened lending powers of the Reserve Bank of New Zealand as a result of the amending Act of 1936 were discussed by Mr. H. R. Rodwell, lecturer in economics at Auckland University College, during an address to the Now Zealand Institute of Business Executives in Milne and Choyce's tearooms "yesterday. Mr. J. A. C. Allum presided over a good attendance.

After referring to the change to State ownership of the bank and its new function to carry out the monetary policy of the Government, Mr. Rodwell- summarised the new powers vested in the institution and commented upon their effects. Various provisions, he said, had greatly widened the bank's lending powers and might result in the development of an effective money' market in New Zealand, in which the Reserve Bank could operate an open market policy as a means of controlling credit. Such a development would be necessarily slow. Exchange Rationing

A too extensive use of the borrowing powers might result in such an increase in imports that the pressure on London funds would become severe, Mr. Rodwell said. Such a situation could be met by tho use of further powers conferred upon the bank. In co-operation with the Minister of Finance, the Reserve Bank might require the whole of the funds of the other banks to be transferred to itself in exchange for New Zealand currency. The Minister of Finance could then suspend convertibility into sterling of Reserve Bank notes. No one could then demand as a right the transfer of funds to or from London, he added. This would amount to a complete system of exchange rationing, the administration difficulties of which would be very great. State Use of Bank The new powers conferred upon the bank, together with the dependence of the bank upon the Government, enabled the latter to use the hank as an instrument of industrial anu commercial policy. That was not necessarily dangerous. The issue depended upon the extent to which discretion in the use of new powers was left to the bank.

The bank should not be required to do things which impaired its efficiency in controlling credit in the interests of business stability, Mr. Rodwell added. The complexity of modern business conditions rendered it difficult to decide upon the right lines of action and it would therefore be a great advantage to the bank if a well-organised department of investigation were set up in connection with it. The work of this department would be to keep in close touch with the changing phases of business activity, both in New Zealand and overseas, so that tho bank would never bo in the position of having to act without an adequate appreciation of the situation.